EBay Finalizes Sale Of Enterprise Unit As Magento Relaunches As An Independent Company

In July, PayPal split from eBay , ending a 13-year marriage between two technology companies that had grown together to be worth more than $30 billion each. While shareholders watched that corporate divorce with great interest, eBay also used the opportunity to shed itself of some other weight, namely its slow-growing Enterprise unit.

On Monday, the San Jose, Calif. e-commerce company finalized the $925 million sale of eBay Enterprise, which helped retailers build and manage online storefronts, to a consortium of private equity investors including Permira Funds and Sterling Partners. In turn, London-based Permira announced that it was spinning out assets it attained in the acquisition into Magento Commerce, an independent company centered around Magento, an open source, e-commerce software platform.

Monday's launch is the latest reorganization of Magento, which was purchased by eBay in 2011, the same year it bought GSI Commerce for $2.4 billion. GSI Commerce would form the backbone of eBay Enterprise and later oversaw Magento, whose software was primarily targeted at medium-sized retailers.

Today, Magento powers more than 240,000 online stores for brands like Rebecca Minkoff and Peet's Coffee & Tea, which collectively sell about $50 billion worth of goods and services every year. The company is in a "unique situation," said Magento Commerce CEO Mark Lavelle, who noted that the platform's potential was often overlooked within eBay.

"It was like putting a bushel basket over a candle--it was dimmed within eBay," said Lavelle, who previously served as the e-commerce company's head of strategy and business development. "Outside of eBay, Magento can shine."

Within eBay Enterprise, Magento was grouped with the legacy GSI business, making it difficult to understand the platform's growth or usage among customers. Last year, Enterprise recorded $1.24 billion in revenue, up 6% from the previous year. Company-wide revenue grew over that same time period by 11.6%.

The enterprise unit's slow growth was part of the reason why eBay decided to take a $786 million write-down on its sale to Permira and Sterling, which strategically carved out the assets from the deal. Permira-owned Magento Commerce will house the Magento platform and eBay's former Retail Innovation arm, which built unique in-store technology experiences for retailers. It will not take on eBay Enterprises' logistics services or its business with larger, long-term clients like Toys "R" Us or Dick's Sporting Goods , both of which will be owned by Sterling Partners.

While Permira did not disclose how much it paid of the $925 million total price for its assets, Principal Phil Guinand said that the company had great potential for growth. Under eBay, the company had already quintupled its business and is on track for annual revenue of about $100 million, he said.

Gartner analyst Chris Fletcher agreed, noting that he "never saw the synergy between eBay's marketplace business and the former GSI commerce enterprise business." He expected Magento Commerce to continue developing its market leading presence by focusing on businesses between $25 million to $100 million in annual gross merchandise volume, while fending off competition from the likes of Shopify and Bigcommerce on the low end and Demandware from above.

"There's a lot of competition on all sides," said Lavelle, before noting that his company, which has about 500 employees and headquarters in Campbell, Calif., is well-equipped for the long run.

With regards to an initial public offering, Lavelle said it was too soon to tell, but noted that "Permira's reputation is for the long term."

"All the natural exits for a financial company are on the table," he added.